NISM Series XVI: Commodity Derivatives Certification

India · National Institute of Securities Markets (SEBI-mandated) · professional

56practice questions written to this syllabus
3subjects

Format

100 questions x 1 mark, 2 hours, pass mark 60%, 25% negative marking. Fee Rs 1,500; valid 3 years.

Sections

Over the years

A SEBI-mandated certification for the commodity derivatives market.

Official source: https://www.nism.ac.in/commodity-derivatives-certification-examination

Subjects this exam draws on

Agricultural Marketing & Price Analysis4 questionsCommodity Markets, Futures & Options41 questionsAgri Risk Management & Insurance11 questions

Five practice questions, worked

Original questions written to this exam's published syllabus and pattern. Not past papers.

1. The local cash price of soybean is 2150 currency units per 100 kg and the nearby futures price is 2300 currency units per 100 kg. What is the basis?

  1. -6.5
  2. 4,450 currency units per 100 kg
  3. 150 currency units per 100 kg
  4. -150 currency units per 100 kg
Answer and working

D. -150 currency units per 100 kg

Basis = cash - futures = 2150-2300 = -150 currency units. Reporting futures minus cash (+150) reverses the convention and the sign; a negative basis means cash is 'under' futures. -6.5 expresses the basis as a percentage of the futures price; 4,450 currency units adds the two prices.

Agricultural Marketing & Price Analysis · Buffer stocks and price stabilisation

2. Demutualisation of a commodity exchange means:

  1. Stopping physical delivery on the exchange
  2. Merging the exchange with its regulator
  3. Converting the exchange into a cooperative owned and managed by farmer members
  4. Separating ownership, management and trading rights of the exchange
Answer and working

D. Separating ownership, management and trading rights of the exchange

In a mutual exchange the owners are also the traders. Demutualisation separates ownership, management and trading rights to reduce conflicts of interest. It has nothing to do with delivery or with the regulator.

Commodity Markets, Futures & Options · Organisation of commodity exchanges

3. At sowing, a farmer sells wheat futures at Rs 5000 per quintal. At harvest the futures price is Rs 4500 and the local cash price is Rs 4250. He sells the crop locally and buys back the futures. His net price per quintal is:

  1. Rs 4250
  2. Rs 5000
  3. Rs 3750
  4. Rs 4750
Answer and working

D. Rs 4750

Futures gain = 5000 - 4500 = 500. Net price = cash 4250 + 500 = Rs 4750. Equivalently, futures price at placement + basis at lifting = 5000 + (-250) = 4750. Subtracting the futures gain (Rs 3750) is the sign error.

Agri Risk Management & Insurance · Hedging with futures and options

4. An option that can be exercised only on its expiry date is called:

  1. A European option
  2. A futures option
  3. An American option
  4. An Asian option
Answer and working

A. A European option

European options are exercisable only at expiry; American options at any time up to expiry. An Asian option pays on an average price, and 'futures option' describes the underlying, not the exercise style.

Commodity Markets, Futures & Options · Forwards, futures and options compared

5. Compared with a forward contract, an exchange-traded futures contract:

  1. Is customised privately between two parties, with the terms negotiated for each deal
  2. Is standardised and cleared through a clearing house with daily margining, limiting counterparty risk
  3. Has no margin requirement
  4. Always ends in physical delivery, since cash settlement is not permitted on Indian or foreign commodity exchanges
Answer and working

B. Is standardised and cleared through a clearing house with daily margining, limiting counterparty risk

Futures are standardised in quantity, quality and delivery, with the clearing house as counterparty and daily mark-to-market. Most futures positions are closed out before delivery. Forwards are private and customised.

Agri Risk Management & Insurance · Hedging with futures and options

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